MR MONEY MAKER: Computer chips could process a profit

MR MONEY MAKER: Huge demand for computer chips could help process a profit

What’s happening? 

It is not just the pandemic that has been disastrous for certain industries. 

Others have suffered for far more mundane reasons – they have run out of stock. 

That’s a problem in any circumstance, but particularly for semiconductors and microprocessor chips, where there is a huge demand. It appears that the effect of the long talked about ‘internet of things’, in which our fridges will be plotting with one another, has finally arrived. 

Flying: Prices in this sector have already risen courtesy of the tech recovery last year

Actually, it is not so much those verbose automatons, but rather cars and other high-tech items, all of which increasingly need greater capacity and thus more magic processing chips with everything.

Why Does It Matter? 

At a time when the world is trying to manage its way out of the economic coronary of last year, the last thing industry needs is further production hold-ups. 

Rising demand and squeezed supplies were bad enough, but add a trade war with China and the meteorological disasters in the southern US (home of some of the largest chip makers), and the much-needed supply lines have been interrupted. 

What Should I Do? 

Prices in this sector have already risen courtesy of the tech recovery last year, and although there have been short-term manufacturing issues, the supply shortage and increased demand have a far longer tail. 

Production will eventually catch up, but for the time being there is certainly a shortfall. This will mean not just more demand but also further takeover activity. 

Any Suggestions? 

In the UK we do not have a huge number of quoted companies. But CML Microsystems has expanded successfully and produces ‘mixed-signal, Radio Frequency and Microwave semiconductors for global communications markets’. 

The shares have recovered but are off previous highs. However, for a less risky approach to the sector look for a broad passive fund. There are a range of alternatives but the iShares PHLX Semiconductor ETF would give much broader coverage. 

This is easily the largest semiconductor-focused ETF and one of the most extensively diversified. It invests in companies engaged in the design, distribution, manufacture and sale of semiconductors. 

The fund skews heavily towards large-cap stocks and gives larger allocations to companies with greater semiconductor industry exposure. 

Justin Urquhart Stewart co-founded fund manager 7IM and is chairman of investment platform Regionally.